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 Although German companies have toned down their public criticism of
sanctions since the CEO of Siemens <SIEGn.DE> was vilified in the
press for meeting Russian President Vladimir Putin in late March, a
behind-the-scenes lobby effort remains in full force.
A confidential paper from the German-Russian chamber of foreign
trade, which was sent to the government last week, shows the extent
of the concern in German business circles as a May 25th presidential
election in Ukraine nears.
Merkel has said she will press for more punitive measures against
Russia if the election is disrupted.
The two-page position paper, dated May 7th, says the Ukraine crisis
is already having a "massive impact" on German business in Russia
and warns of dire consequences if Europe follows through on threats
of economic sanctions.
"Deeper economic sanctions would lead to a situation where contracts
would increasingly be given to domestic firms, projects would be
suspended or delayed by the Russian side, and Russian industry and
politicians would turn to Asia, in particular China," the paper
says.
The resulting loss of market share for German and European firms
would be "long-term and sustainable", causing "irreparable damage"
to Germany's competitive position, according to the paper, provided
to Reuters by an official in Berlin.
Moreover, sanctions would lead to job losses in Germany and expose
companies to "massive compensation" claims if they were forced to
break contracts with their Russian counterparts, it says.
The chamber represents over 800 companies, providing support to
German firms operating in Russia and Russian companies present in
Germany. Rainer Seele, the chief executive of Wintershall, the oil
and gas unit of German chemicals company BASF <BASFn.DE>, serves as
president of the group.
CLOSE TIES
Germany has close economic ties to Russia. Over 6,000 German firms
are active there. And Germany receives roughly a third of its oil
and gas from Russia.
Recent data showed German exports to Russia -- its 11th biggest
trading partner -- slumping 16 percent in the first two months of
the year. That was before the EU unveiled a first round of mild
sanctions in the form of visa bans and asset freezes against
Russians individuals, many close to Putin.
The economic risks have not prevented Merkel from warning repeatedly
that she is ready to introduce deeper-cutting trade sanctions, a
stance that has opened her up to criticism from former German
chancellors Gerhard Schroeder and Helmut Schmidt, Social Democrats
(SPD) who reject confrontation with Russia.
German industry, on the other hand, has gone quiet since Siemens CEO
Joe Kaeser met with Putin and referred to the Ukraine crisis as
"short-term turbulence" which would not get in the way of his firm's
ties with Russia. Last week Kaeser said he regretted his choice of
words.
Out of public view however, lobbyists for German industry continue
to warn loudly against steps that might lead to a full-blown
economic confrontation with Russia in the hope that Merkel could
waver.
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The "Ost Ausschuss", or Committee on Eastern European Economic
Relations, has been at the forefront of these efforts.
Its message to German politicians has been that a confrontation with
Russia would hit not only Germany, but southern European countries
that are just starting to recover from the euro crisis. The
suggestion is that Europe itself would be plunged back into deep
economic and social turmoil.
In a sign that German industry remains determined to keep Russia
close, the CEOs of big utility E.ON <EONGn.DE> and retailer Metro
<MEOG.DE>, as well as Klaus Mangold, the chairman of tourism group
TUI <TUIGn.DE> -- and former head of the Ost Ausschuss -- are all
planning to attend an economic conference in St. Petersburg next
week that will be hosted by Putin.
U.S. executives have pulled out of the conference after the White
House made clear that their participation would be frowned upon.
Like their German counterparts, several French CEOs will also
attend.
"Especially during a time of crisis like this, an international
business dialogue is of great importance," Eckhard Cordes, current
head of the Ost Ausschuss, told Reuters in an interview this week.
One of the biggest concerns among German businesses is that U.S.
firms will end up being the big beneficiaries of an economic
confrontation between the West and Russia.
"We shouldn't forget that the debate about Russia is also about
economic competition between the United States and Europe," said
Heino Wiese, a former SPD politician with close ties to Schroeder
who runs a consulting firm in Berlin that advises German and Russian
firms.
Wiese, who admits to being a "Russia sympathizer" and has a photo of
himself shaking hands with Putin prominently displayed in his
office, pointed to news this week that U.S. Vice President Joe
Biden's son is joining the board of a Ukrainian gas company as
evidence the U.S. is already seeking to gain from the crisis.
"At the end of the day, the U.S. wants to be the one that sells gas
to Europe," he said.
(Writing by Noah Barkin; editing by Philippa Fletcher)
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